The market finishes strong one day and gets hammered the next. This is getting monotonous. You can blame the poor China data overnight for a good part of the drop. The central bank there has cut interest rates to stimulate the economy, and the youth unemployment data is so poor, China announced it will no longer be reporting that figure. That will solve the problem! Still, the S & P 500 is down eight of the last 10 days. You can’t blame all that on China. There isn’t heavy selling, there’s just no buying enthusiasm. This is what happens during summer corrections. It’s better to focus on the “pain trade.” What would throw off the greatest number of participants in the market? A soft landing has become the market’s consensus, so anything that throws that off will cause problems. Anything that indicates strong economic growth will make the Federal Reserve more likely to hike rates, or at the least keep rates higher for longer. So, the “pain trade” would see strong economic data and a slow creep up in Treasury yields. Both of those scenarios are happening. On Tuesday, July retail sales were up 0.7% month over month versus expectations of up 0.4%. Ex-autos sales were up 1.0%, well above the 0.4% forecast. Ten-year Treasury yields are up 4 basis points, sitting at their highest levels since November 2022. My colleague Steve Liesman posited that a “no landing” scenario, where the economy remains strong and the Fed is forced to stay higher for longer, was still plausible. That fits perfectly with the “pain trade.” To be fair, we are still less than 3% from the old highs, so there’s no panic. If you are technically inclined, there is support for the S & P 500 at 4,447, the current 50-day moving average. But remember the old saw: The first 5% down is up and down because everyone buys the dips. The next 5% down happens very fast because everyone stops buying the dips.
